Dec. 8 (Bloomberg) -- Google Inc., Apple Inc., and Facebook
Inc. need to pitch in to help pay for the billions of dollars of
network investments needed for their bandwidth-hogging services,
European phone operators say.

As mobile and Web companies add videos, music and games,
operators including France Telecom SA, Telecom Italia SpA and
Vodafone Group Plc want a new deal that would require content
providers like Apple and Google to pay fees linked to usage.

“Service providers are flooding networks with no
incentive” to cut costs, France Telecom Chief Executive Officer
Stephane Richard said last month. “It’s necessary to put in
place a system of payments by service providers as a function of
their use.”

Richard, who addressed the issue at the “Le Web”
conference in Paris today, has joined Telecom Italia CEO Franco
Bernabe and Telefonica SA CEO Cesar Alierta in what could turn
into a cold war with Web companies. As more consumers access the
Internet on mobile devices, the cost of building bigger networks
may outstrip revenue growth for wireless operators, slicing
their return on investment.

The mismatch between investments and revenue “is set to
compromise the economic sustainability of the current business
model for telecom companies,” Bernabe said.

While the number of mobile data connections in western
Europe will rise by an average of 15 percent a year to 270
million in 2014, overall end-user revenue will fall about 1
percent a year, IDC estimates. Operators’ annual spending on
network gear in the period will surge 28 percent from last year
to about $3.7 billion, according to researcher Canalys.

Economic Sustainability

Companies such as Google and Yahoo! Inc. “use Telefonica’s
networks for free, which is good news for them and a tragedy for
us,” Alierta said in February. “That can’t continue.”

To be sure, operators are benefitting from the surging
popularity of mobile data use. Domestic data revenue at France
Telecom, the biggest seller of Apple’s iPhones after AT&T Inc.,
surged 24 percent in the third quarter, rising to almost 32
percent of network revenue.

The explosion of data “is good news,” France Telecom’s
Richard said today. It is, however, “a challenge for carriers
like us,” he said, adding that it “raises the question of the
business model of mobile data.”

Faced with slowing overall revenue growth even as data
usage soars, the operators are trying to pass on some of the
costs to the service providers.

‘Frenemy’

“There’s a clear competitive response by the carriers to
try and make moves to ensure that the likes of Google and Apple
don’t have it their own way,” said Paolo Pescatore, an analyst
at CCS Insight in London.

Last month, the tensions threatened to spill into public
after a plan by Apple to introduce a so-called soft SIM in its
next iPhone prompted threats from European operators to cut
subsidies for the device, the Daily Telegraph reported.

A soft SIM would make it easier for consumers to switch
network providers by eliminating the need for a new, physical
SIM card issued by an operator to do so.

While Apple backed off for now, the technology will
eventually be introduced, Sanford Bernstein analyst Robin
Bienenstock said in a note to clients, calling the iPhone-maker
a “frenemy” for operators.

Pay for Use

Service providers and phone operators are trying new
models. In the U.S., Google and Verizon Communications Inc., the
biggest domestic mobile operator, urged regulators to exclude
mobile Internet connections from potential net neutrality rules,
which could bar operators from selectively slowing some traffic.

The exception, which wasn’t adopted by the Federal
Communications Commission, would have allowed operators to
charge consumers or content providers a premium for delivery of
certain videos, games or other applications.

Rules encouraging payment for network use are more likely
in Europe, where companies like France Telecom and Telefonica
are some of the biggest employers, New York-based Sanford
Bernstein analyst Craig Moffett and Bienenstock wrote in a note.

Operators are meanwhile looking for ways to win revenue
from data-hogging customers. Vodafone, the world’s largest
mobile provider by revenue, plans to shift to so-called tiered
pricing based on data use, following a similar move away from
unlimited plans by AT&T Inc.

No Sharing

“We are progressively going to switch from the unlimited
approach that has been the trademark of our industry to
something which is more sophisticated,” France Telecom’s Richard
said today.

Unlimited data plans will become increasingly rare, said
Rosalind Craven, an IDC analyst based in London.

Service providers, meanwhile, say they already pay enough.

“Currently about 40 percent of our expenses go to networks
anyway -- servers, peering, our content delivery network, and
other resources,” said Giuseppe de Martino, the legal and
regulatory director of Paris-based online-video provider
Dailymotion SA. “If telecom operators want us to share in their
expenses, perhaps we should talk about sharing subscription
revenues as well.”

Bill Echikson, a spokesman for Google in Brussels, declined
to comment as did Cupertino, California-based Apple spokeswoman
Trudy Muller.

‘Big Battle’

Operators’ ability to win favorable terms may be enhanced
by an increasing number of mobile operating systems, including
Google’s Android, Apple’s iOS, Nokia Oyj’s Symbian and Research
In Motion Ltd.’s BlackBerry.

“The outlook vis-a-vis two years ago is much better now,”
Vodafone CEO Vittorio Colao said on a conference call last
month. With “four solid competing operating systems, I think
our customers have a choice and we have a choice as well.”

The operators’ emerging fight is ultimately about control
over customers and their wallets, said CCS Insight’s Pescatore.

“They want a bigger piece not only of the pie but also
ownership of the customer,” he said of web companies. “There’s
clearly a big battle.”